63 Stats Unit 7 Review

Front

What is the formula for continuous compounding?

Back

A = Pe^(rt), where A is the amount of money accumulated after n years, including interest, P is the principal amount (the initial amount of money), r is the annual interest rate (decimal), and t is the time the money is invested for in years.

Front

What is the formula for compound interest compounded quarterly?

Back

A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, P is the principal amount, r is the annual interest rate (decimal), n is the number of times that interest is compounded per year, and t is the number of years the money is invested.

Front

How do you calculate monthly payments on a loan?

Back

Use the formula M = P[r(1 + r)^n] / [(1 + r)^n – 1], where M is the total monthly mortgage payment, P is the principal loan amount, r is the monthly interest rate (annual rate divided by 12), and n is the number of payments (loan term in months).

Front

What is the difference between a 403b and a 401k account?

Back

A 403b is a retirement plan for certain employees of public schools and tax-exempt organizations, while a 401k is a retirement savings plan for private-sector employees.

Front

What does it mean for interest to be compounded continuously?

Back

Continuous compounding means that interest is calculated and added to the principal balance at every possible instant, leading to exponential growth.

Front

If you want to have $30,000 in 15 years with a 7% annual return, how do you find the principal?

Back

Use the formula P = A / e^(rt), where A is the desired amount, r is the annual interest rate, and t is the time in years.

Front

What is the effective annual rate (EAR)?

Back

The effective annual rate is the interest rate on an investment or loan that is compounded over a period of time, expressed as an annual rate.

Front

How does compounding frequency affect the total amount of interest earned?

Back

The more frequently interest is compounded, the more interest will be earned on the initial principal and on the interest that has already been added to the principal.

Front

What is the significance of the annual percentage rate (APR)?

Back

APR is the annual rate charged for borrowing or earned through an investment, which does not take into account the compounding of interest.

Front

What is the formula for calculating future value with annual compounding?

Back

A = P(1 + r)^t, where A is the future value, P is the principal, r is the annual interest rate (decimal), and t is the number of years.